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Home owner insurance quick question

Established Contributor

Home owner insurance quick question

 Closing on August 8, 2016 and 12 months of homeowners insurance has to be paid which is 12 times $40 equals 480. Would it be wiser just to pay the cheapest homeowners insurance that I can get like 12 months times $30 which is 360  because my wife says that our mortgage company's going to hold the money for the homeowners insurance in escrow  in case we default on our loan the house will be covered with the homeowners insurance in escrow. If that's the case, should not just buy the cheap insurance that will be held in escrow and then upgrade our homeowners insurance with the first months payment? 

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Re: Home owner insurance quick question


Vegas247 wrote:

 Closing on August 8, 2016 and 12 months of homeowners insurance has to be paid which is 12 times $40 equals 480. Would it be wiser just to pay the cheapest homeowners insurance that I can get like 12 months times $30 which is 360  because my wife says that our mortgage company's going to hold the money for the homeowners insurance in escrow  in case we default on our loan the house will be covered with the homeowners insurance in escrow. If that's the case, should not just buy the cheap insurance that will be held in escrow and then upgrade our homeowners insurance with the first months payment? 


Insurance is not something to mess with - You do far better getting the coverage you need at the price you want at the first go.  If you get the "cheap insurance" with the idea of changing it out a month later, you open yourself up to a couple of things.  First, what happens if you experience a loss during that first month?  You only have the coverage you've paid for, and if you've under-insured to save a buck you're going to regret it thoroughly when they settle that loss based on that.  Second, Insurance companies use the length of time you have a policy as one of the factors in determining your rate.  So, if again you start out with the "cheap insurance" and try to change a month later, the policy that was 10% more in month 1 could become 15-20% more in month 2, since you've now got a one month long tenure with your current company.

 

Also, the reason the mortgagee is asking for the annual premium up front is because they're going to pay it up front, not because they intend to hold it in escrow.  Your insurance company will receive payment in full at the time the policy is issued out of your closing costs.  Where escrow comes into play is that in order to pay for the renewal (the second year), the mortgagee will add your annual premium/12 to each of your mortgage payments and deposit that into escrow, with the idea that by the time renewal rolls around you will have enough saved up in escrow to again pay that policy in full.  Why is this important?  Because if you cancel and change companies mid-term, Company A will send you (yes you, not your escrow account) a refund of the unearned premium (the part of the paid-in-full term you haven't used yet), and it will be your responsibility to ensure Company B gets paid out of that refund.  An additional headache you probably want to avoid if you can.

 

TLDR:  get it right the first time...the best way to handle Home insurance is the Ron Popeil method - "Set it...and Forget it!"

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Established Contributor

Re: Home owner insurance quick question

Thank you for reply quickly and also a great explanation that even I can understand. My DW and I will keep our policy the way it is since you have pointed out how it works. I won't think about cutting corners or think of a short cut or easy way out like I always do when shopping.

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Message 3 of 4
Established Contributor

Re: Home owner insurance quick question

 

you are very welcome Smiley Happy  I always knew that learning the ins and outs of insurance would be more useful than simply making a living at the insurance company I work for  Smiley Wink

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